CONSTRUCTION CONTRACTS, DUTIES &

RESPOSIBILITIES OF PARTIES INVOLVED IN THE

CONTRACT, CONCEPT OF PRIMARY CONTRACT

Ar.Ajith Bhaskar , Asst. Professor -MES

CONTENTS

•CONTRACT
•CONTRACT TYPES
•CONSTRUCTION CONTRACTS & MANAGEMENT
•LIABILITY PERIOD
•PERFORMANCE BONDS
•CERTIFICATES & PAYMENTS
•BREACH
•ARBITRATION
•TERMINATION
-WHAT IS A CONTRACT?

―An agreement entered into by

two parties under the terms of
which one party agrees to
perform a specific job for which
the other party agrees to pay.
Contract documents attached to
and/or stated in the agreement
form integral parts of the
contract‖.
CONCEPT OF BUILDING CONTRACTS

For enforceability of a contract, 4 essentials agreements

must be made:
-Free consent.
-Parties competent to contract.
-Lawful considerations & object
-Agreement must not be expressly declared to void
PROCESS OF A CONTRACT
Contract should be executed
on stamp paper of the value • Cannot be admitted in

Unstamped
as prescribed by Indian court/arbitrator
Stamp Act, 1899 • Directed back to get the
documents duly stamped by
paying stamp + penalty as per
signed stamp act.

No contract
sealed
• Correspondence exchange are
Only for public body taken account

delivered
 PRIVATE & PUBLIC CONTRACTS
Private

• Signing the necessary document

• Under respective seals:

• The seal of the authority must be affixed by those
/Local authorities

persons who are authorized to do so.

Public/govt.

• The instrument operates at once, as soon as the

seal is affixed
• The seal should not be affixed carelessly and
indifferently.
• The seal shows that every member is bound by
whatever has been done by the person authorized
to do so .
 WHEN A CONTRACT IS VOID?

•Misrepresentation
•Fraud
•Mistake

The contract for additions and alterations to a building becomes void if

it gets destroyed for any reasons whatsoever just after the signing of
the contract.
-TYPES OF CONTRACTS

•Lump sum contract

•Item rate contract / schedule
contract
•Lump sum and schedule contract
•Cost plus fixed fee contract
•Cost plus percentage of cost
contract
•Special contracts
LUMP SUM CONTRACTS

•Contractors offers to do the whole work for a

total stipulated sum of money.

•No individual rates quoted.

•No schedule of different items of work .

•Deposit of 10% security money and other

conditions of contract.

•Detailed measurements of different items are required

•The whole work is compared and checked with

drawings and specifications before releasing the
payment.

•Larger projects –part payment is made.

ITEM RATE / SCHEDULE/ UNIT PRICE CONTRACTS

•The contractors undertakes the execution of work on

an item rate basis.

•The amount to be received by contractor depends

upon the quantities of various items of work actually
executed.

•Suitability

•All types of engineering works financed by public

or government bodies.
•Suitable for works which can be split into various
items and quantities .
LUMP SUM & SCHEDULE CONTRACTS

•Similar to lump sum contract except the schedule of

rates is also included in the contract agreement

•Contractor offers to do a
particular work at a fixed sum
within a specified time as per
plans and detailed specification.

•Suitability:

•For construction works for which contractors have

prior work experience
 COST PLUS FEE FIXED CONTRACTS

•It is done when the scope and nature of the work can
be broadly define.

•The amount of fee is determined as a lump sum from a

consideration of the scope of work, its approximate
cost, nature of work, estimate time of construction,
manpower and equipment required.
Indirect cost profit Fee % Total cost of
(L/Sum) construction
Operating over head cost work

Direct cost of Job overhead cost Cost of work

work defined in
Material cost Labor cost of equipment
cost-plus –
of items of items of work costs of item
fee contract
work of work
COST PLUS FEE FIXED CONTRACTS

•Here a certain percentage over the actual cost of

construction is given.

•The actual cost of construction is reported by the

contractor and is paid to him by owner together with a
certain % as agreed earlier.

•Proper control has to be exercised by the owner

(material, labour).

•Suitability:
•Work to be completed expeditiously & where unseen
difficulties are likely to occur.
Structures where cost of construction is immaterial.
Percentage to be paid to the contactor should not be
applied on the costs of the following:

•Salaries, office expenses such ad stationery,

postage or telephone accounts, travelling
expenses.
•Charges for the use of any equipment that the
contractor would not normally use for the
performance of the work.
SPECIAL CONTRACTS

TURN KEY CONTRACT

•Integrated contract work pertaining to various
disciplines (civil, electrical, mechanical) is in hand of
single contractor
•The main contractor can sublet the contract to sub-
contractors who are specialist.
•Main advantage to the owner is that he need not
coordinate the work between different contractor.

PACKAGE CONTRACT
•Two or more related jobs, each of which could form a
separate contract are combined together in a single
contract.
•Civil +design, construction + maintenance + supply
NEGOTIATED CONTRACT
•Negotiation take place between the representative of
the owner and the main contractor for project cost
•Detail project specification is required
•Consultancy project of world bank

CONTINUING CONTRACT
•New or additional work is awarded to the contractor
on the basis of agreed terms and conditions of an
existing contract
• do not require re – tendering, save time and money

RUNNING CONTRACT
•Provide goods and services at specified intervals or
as an when required by owner.
•Contract price is not fixed . Only on supply or
delivery.
LUMP SUM CONTRACT ITEM RATE

MERIT MERIT
•Owner can decide whether to start •No detailed drawing at the time of
or shelve the project. allotting contract.
•Owner need not employ the staff to •Changes in drawing and quantities of
keep periodical accounts. individual items can be made as per
•Contractor can earn more profit by requirement within agreed limits.
in-depth planning and effective •The payment to the contractor is
management at site. made on the actual work done by him
at the agreed rates.
DEMERIT
•Before the contract is awarded , the DEMERIT
project has to be studied & the •Total cost of the work can only be known
complete contract to be prepareda upon completion.
•Unforeseen details of work are not •Owner may have financial difficulty at
final stage
specified—contractor claim high
•Additional staff is required.
amount. •The scope for additional saving with use
of inferior quality materials
LUMP SUM SCHEDULE CONTRACT COST + FIXED FEE CONTRACT

MERIT MERIT
•Additional staff is not required to •Actual cost is taken.
take detailed measurements of work •Contractor performs the work in
done for releasing payments to the the best interest of the owner-
contractor. good quality work
•The owner can know from the tenders •Work can be taken in hand before
as to what the project will cost him. detailed drawing
•Changes in design and methods of
DEMERIT construction can be done
•Before the contract is awarded the , •Work can be executed speedily
all the contract documents are
required to be completed in every DEMERIT
respect. •This form cannot be adopted in case
•The non-scheduled extra items arising of public bodies and government
out of changes made in the drawing department
and specification are often a source •The final cost of the work is not
of dispute. known in advance.
RISK ANALYSIS…

owner

risk
contractor risk
risk
risk
risk

Lump Item rate Lump sum Cost plus Cost plus

sum contract / and fixed fee percentag
contract schedule schedule contract e of cost
contract contract contract
CONSTRUCTION CONTRACT & MANAGEMENT

WHAT is construction contract?

•It is a legal binding agreement between
two parties on the details and cost of a
construction project.

•2 types of clients that use these

-residential
-commercial
 CONSTRUCTION MANAGEMENT

• It is to enable the client (owner) to specify project functions and

Briefing permissible costs.
stage
• Architect, engineer and other member to correctly interpret.

Designing • Preparation of Detail designs, working drawing.

stage • Technical investigation , material supply and market survey.

Tendering • To appoint a contractor or a number of contractors who will

stage undertake the construction work.

Construct- • Execution of construction work as per the design and within the
ion stage agreed limits of cost, time and specified quality.

Commission • Performance of the structure is evaluated and the proposed nature

stage of maintenance and repair are considered.
PARTIES INVOLVED IN THE CONSTRUCTION TEAM

Main parties are : -The Owner

-The Contractor

Contractor Sub
and contractors
contractor‘ Construction
Owner s support
+owner‘s manager's
team consultant
support
team Engineers
Designer
and
consultants
architects
 Construction
consultants
manger

Sub
Owner +owner‘s contractors
support team Contractor and
Owner +owner‘s contractor‘s
support team support team Construction
manager's
contractor consultant

Engineers and Designer

Engineers Contractor architects consultants
and and
architects + contractor‘s
consultants support team

Sub
contractor

suppliers
ROLE OF AN OWNER

•To appoint architect, engineer, surveyor and other consultants & to

pay their professional fees.

•To give instructions to the architect about the requirements of the

project.

•Discuss Bid evaluation with the architect, so that the contractor for
the job is selected.

•Accept the tender or authorize the architect to accept it on his

behalf.

•To enter into a contract with a contractor.

•Not to interfere with the progress of the work & not to issue orders
for extra work.
ROLE OF AN ARCHITECT

On signing a contract an architect is :

•Entrusted with financial undertaking of
the project.
•Has to work as an auditor while
certifying payments to the contractor.
•Charged with the judicial function-
umpire b/w owner & contractor.
•Responsible to the government when
he signs the documents.
•Responsible for good or bad results
if the contractor has acted as per the
drawings.

Architect is liable from the start of the

project, upto 2 years after the
completion of the project
ROLE OF A CONTRACTOR

On signing a contract an contractor is :

•Collects comparative rates of building
materials, labour etc. from
subcontractors.
•Puts forward schedule of labor rates
himself
•Any discount or rebate while
purchase will be passed on to the
owner
Date of completion:
Date of commencement: The contractor is liable to work for
The contractor is given certain certain period as per contract.
period to mobilize the site. The completion date is worked out
Start project on or before the date. and entered accordingly.
The date is recorded.
SUBCONTRACTS AND SUPPLY CONTRACTS

SUBCONTRACTOR SUPPLIER

• Works under the direction of • Someone who supplies what are

a contractor essentially raw materials such as
soil, gravel, lumber, bricks etc.
• Is a specialist company which
employs artisans of one or • Nowadays materials are supplied
two different trades more or less prepared and
ready for installation
• Example: masonry
subcontractor – bricklayers,
mechanical subcontractor -
plumbers
SUBCONTRACTS AND SUPPLY CONTRACTS

SUBCONTRACTOR‘S OBLIGATION IN SUBCONTRACTS

Should be a reflection of the contractor‘s obligation in the primary contract. The

subcontractor is responsible

• To provide temporary facilities and services not specifically referred to in the

primary contract
• To provide specific construction plant and equipment
• To keep the work and the site clean and free from spilled and waste materials
• To make good the work of other subcontractors, spoiled or damaged by the
subcontractor
• To do the cutting and patching for the work of other subcontractors
• To comply with the health and safety measures and requirements implemented
by the contractor
• To furnish schedules and progress reports not required by the primary
contract
SUBCONTRACTS AND SUPPLY CONTRACTS

SUPPLIER‘S OBLIGATION IN SUPPLY CONTRACTS

A supplier‘s obligations are similar to those of a subcontractor, depends on

the substance of the supply contract.

Example: delivering bricks to site will create only simple obligations, whereas
a supply contract for air-conditioning equipment may create additional
obligations (operating instructions, maintenance, warranties etc.)

Timely delivery of the proper martial is the most important duty of a supplier.
VIRTUAL COMPLETION & DEFECTS LIABILITY PERIOD

When the work is completed the architect issues a certificate

with date (a letter to owner & contractor)- ‗CERTIFICATE OF
COMPLETION OF PROJECT‘

A period of Liquidated Damages, if any & a period for ‗Defects

Liability‘ is worked out from the date of completion.

•Within 14 days after the expiry of Defects Liability Period,

the architect must issue ‗schedule of defects‘
•The contractor should attend to the works in a reasonable
time.
•If contactor is unwilling, the estimate cost can be
deducted from the amount of refund.
PERFORMANCE BONDS

•Within 10 days contractor deposits with the architect a

‗security deposit‘ along with earnest money.
•Security deposit is approved by the architect & remains with
him till the Defects Liability Period.

•Security money indemnifies the owner against losses or

defects arising from any clause under the contract or the
failure of contractor to carry out the contract.
CERTIFICATES & PAYMENTS

It is a mode of expressing the satisfaction of the works

executed by the contractor and also certify the payments due
to the contractor from time to time by architect or engineer.

Interim certificate

Certificate of visual completion

Penultimate certificate

Final certificate
 • A statement of facts which show approximate value of work done or the
contract price of material delivered on site.
Interim
certificate • Payments made under these certificates are provisional and are subject to
adjustment and to readjustments at the end of the contract.
• Once certificate is issued, material cannot be removed.

• Statement of the fact which shows that the works given in the contract are
Certificate
complete to the satisfaction of the architect.
of visual
completion • This certificate fixes the date of commencement of defect liability period as
well as it fixes the last date of calculation of liquidated damages.

• This certificate is issued to collect the necessary fees from the contractor for
Penultimate which survey /engineer is bound.
certificate

• The certificate which shows the final satisfaction of the work on its completion
Final
and the amount due (if)
certificate
BREACH OF CONTRACT

WHAT IS BREACH OF CONTRACT???

When a party fails to perform one or more of the obligations imposed upon
him by the contract, breach of contract occurs, leading to its determination.

The owner can determine the contract on three grounds, namely

default
bankruptcy
offences and other illegal acts

The breach may be total or partial

BREACH OF CONTRACT

EXCUSABLE DELAYS NONEXCUSABLE DELAYS

• Exceptionally inclement weather • Subcontractor‘s or supplier's

• Fire and insurance claim settlement delay
• Civil commotion/ strike • Contractor‘s failure in field
• Delay caused by nominated organization and equipment
subcontractors or suppliers • Contractor‘s financial failure
• Other causes beyond the • Ordinary and foreseeable
contractor‘s control weather conditions

CONCURRENT DELAYS

Delays on the part of the employer as well as those on the part of the
contractor
ARBITRATION

• Disputes between the contractor and owner

– Delay
– Defective work
– Excess consumption of material

• This can be settled through litigation in a law court or where the

contract permits, through arbitration.

• Arbitration is a process of hearing and determination of a dispute by

an impartial reference selected upon the parties concerned
– Arbitration without intervention of court
– Arbitration with intervention of court
– Arbitration in lawsuits
ARBITRATION CLAUSES

All disputes or claims arising of arbitration, most of the construction

contracts incorporate thereof, will be settled through arbitration in
accordance with the Indian Arbitration Act ,1940

The parties may agree to the appointment of a single arbitrator, or each

party may nominate an arbitrator and the two nominated arbitrators may
mutually select an umpire

The parties will mutually agree regarding the sharing of arbitration fees
and expenses

The arbitration proceedings will be conducted by the arbitrator(s) in

accordance with laid down procedures at mutually convenient date and
places.

In the event of a difference of the opinion between the two arbitrators

concerning the award, the matter will be referred to the umpire and his
decision will be final

The arbitration award will be final and binding upon both parties.
TERMINATION OF AN AGREEMENT

Either one can terminate the agreement by giving a written notice of 30

days to the other party

Cause of termination shall be substantial failure to perform his part of

responsibility or duty

If one of the party has failed in his duty he shall not give a notice of
termination

If not due to failure of duties by architect then the architect is entitled to

fees as per schedule of payment (additional payments for revisions and
curtailed portion of the work)

On proper termination of the previous architect and on payment of his fees,

the owner can employ another architect to complete the work